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Truthfully, it is not as profitable to invest in apartments as it may seem to be from the first sight. It’s a beautiful idea, but you have to take into account utilities, maintenance expenses, potentially problematic tenants as well as timeouts between them. All in all, getting 4-5% from renting is a very positive outcome.
Luckily, there are plenty of ways to invest in real estate online. The advantages are pretty obvious: you don’t have to care about boundaries and distance, you need a smaller amount of capital for a start, and your laptop or a smartphone are the only things you actually need.
So, here are the options.
REIT is a collective investment fund. The money of shareholders is collected. Each investor receives a share, proportionally equal to the invested funds. The total sum is invested in real estate.
Basically, REITs can be considered as regular joint-stock companies with free circulation of shares on the stock market, only in the real estate sector. Any investor with access to the exchange and a necessary (even very modest) amount can buy shares (invest in funds).
There are three different categories of trusts. The type depends on the areas of investment in real estate.
They buy or build real estate for fthe lease. This is where the main income comes from. They are usually interested in commercial, residential and social real estate as well as the hotel business. The management company takes care of all the troubles, expenses and legal relations with the tenants. The share of rental funds is the lion's share (more than 90%).
They work with encumbrances on mortgage loans. Income is generated as interest on loans. The crisis of 2008 was caused by mortgage bonds and a landslide of prices in the real estate market. Since then investors are very cautious about this topic. Hence, the share of such funds is not high and makes up less than 10% of the market.
They can invest in rental real estate and own mortgage securities at the same time. You can barely find it nowadays. Less than 1% of the REIT's capitalization.
Well, because of profit mainly. The dividend yield of real estate funds ranges from a modest 2-3% to 10-12% annually (in USD). The average size is 4-5% per year. The dividends are paid monthly or quarterly. Given the high and constant dividend flow, almost all investment companies and pension funds have a piece of real estate funds in their stocks portfolio.
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REIT ETFs are exchange-traded funds that invest in mortgage investment trust securities and their derivatives. Unlike investing in different REITs, it allows you to split up your investment among different reality projects and decrease the total risks.Plus, it can offer low fees overall.
This is a simple option of real estate investments. You put your funds into the trust, oriented on securities, and the trusts reinvests the profit back. Investments are made in a combination of REITs, real estate agencies and software providers as well as real estate management companies.
Crowdfunding is a method of collective financing based on voluntary participation. The peculiarity of modern crowdfunding is that fundraising is carried out electronically, through special platforms. Fundraisers do not interact directly with sponsors. That makes crowdfunding efficient and transparent. It requires minimal costs and excludes the factor of corruption.
On the basis of this information, you can imagine what real estate crowdfunding is. Basically, it is a platform that allows you to invest in different realty projects. It connects investors and developers. The main difference between individual investment and crowdfunding is lower risks. In the second case you will be supported by real estate professionals all the way.
Before making a final decision about the way to invest your capital, collect as much information as possible. Many investment platforms allow you to follow the history of a particular project and assess risks, but without enough experience your loss can be unexpectedly bigger than you have thought. But, as famous economist Benjamin Graham once said, “successful investing is about managing risk, not avoiding it”.
Photo: pixabay.com
